← The Breeze With Beverage Digest
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Foreign.
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This is the Breeze with Beverage Digest. I'm your host, Duane Stanford, the editor and publisher of Beverage Digest. The Breeze is where we bring you into the kinds of industry conversations we have every day at Beverage Digest. We dissect what's happening, connect the dots, and ask the most important question. What does this mean? I'm joined, as always, by my friend and co host, Jon Sitcher. Many of you know him as a former editor of Beverage Digest. John has since consulted for companies ranging from Coca Cola to Pure Circle. So, John, we had dinner this past weekend in New York, and all of us had a drink or two. It's kind of part of the social fabric of America and the social fabric of hanging out with friends. I'm wondering, would you say you're drinking more or less these days than you used to or about the same?
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C
I'm probably drinking a little less only because I'm hearing things from one or two of my doctors. Like, one of my doctors said he stopped drinking completely. Another doctor, every time I have my annual physical says, what's your alcohol consumption? And it's generally been one vodka a night. And he sort of smiles like it's sort of okay, but he'd prefer less. So I think that, you know, whereas when I was in my 40s or 50s, maybe occasionally I'd have two drinks if we went out to dinner, I am certainly no more than a one drink a night guy now.
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B
Yeah, I'm with you. You know, like many Americans, I'm working on my weight right now. And, you know, part of that is cut back on the alcohol. You know, I drink socially for the most part, but, you know, having to pay a lot more attention to that, I guess I'm hitting 55 and I don't know, kind of the natural evolution in some ways. So I'm with you on that. But, you know, I ask you that because there's been this huge debate, as you well know, John, in the alcohol beverage industry about whether declining consumption trends are the result of things like economic pressure on consumers or worse. They just don't want to consume as much alcohol as they used to. Alcohol beverage makers, distributors, retailers, they're in a near panic to figure out what to do about it. In fact, the National Beer Wholesalers association, which meets less than two weeks from now in Las Vegas, recently coordinated an emergency meeting of sorts in Chicago to try to figure out what the heck is going on with sales and why it's a real problem without a clear solution yet. Now, as you also well know, John, this has Implications for the kinds of companies we talk about here, like Red Tree, Coca Cola's alcohol beverage unit, which makes brands like Minutemade, Spiked and Tocco, Chico Hard Seltzer, Topo, Chico Hard Seltzer, and of course, soft drink bottlers, some of whom also have separate beer distribution businesses. You know, thinking of bottlers like Raise holdings, that's Coca Cola bottler and a beer distributor, Pepsi bottlers like Buffalo Rock. So with all of that as a backdrop, I thought I'd bring on someone who's helping to unravel this consumer ball of yarn. And that's RBC Capital Markets beverage analyst Nick Modi. Now, Nick will be at that National Beer Wholesalers convention less than two weeks from now talking to beer distributors about what he thinks they can do to turn things around. In fact, late last month, Nick and his team released a 178 page deep dive research report looking into the question of whether declining trends are cyclical or, heaven forbid, structural. We'll dive into that today on the breeze. Nick, welcome.
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Dwayne, thank you for having me.
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So, first of all, let me ask you the same question. Are you drinking more or less than you used to? Do you drink?
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I'm actually not sure I do drink. I do drink. I'm a big wine guy. I have been, you know, trying to moderate a little bit. You know, I do enjoy a nice bottle of wine with dinner with my wife. And so, you know, sometimes it's a bottle and a half, but yeah, so we've ratchet back. But it's, it's a, it's a fascinating thing because, you know, we're aging as a population, right? And, you know, the three of us speaking on this call, like, as we get older, of course we're going to drink less. But guess what? The entire industry is so focused on the next generation of consumers that they forgot that most of their volume is consumed by us. Right. And so I think one of the things that we'll talk about, I'm sure is, you know, there needs to be some R and D on consumer solutions for people like us that want to enjoy and engage and indulge, but not have some of the ramifications as we get older. Whether it be feeling like we have arthritis because we're inflamed or this whole dynamic of our metabolism and gaining weight.
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B
Yeah. I mean, to that point, we also have the money, right? Our age group has the money.
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C
And Nick, something has changed. I remember when I was young, probably in my 30s or 40s, you know, going to my internist cardiologist for my annual checkup, and he recommended a drink a night and he thought it was good for. He thought it was good for heart health. And something has changed, whether it's research or attitudes or both. But I'd love to hear, you know, why you think that kind of medical input has changed, where at least the doctors I talk to now are advising against drinking or at least moderating your drinking.
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A
Yeah, I think, I mean, I think you're going. You're talking about the French paradox, John. Right. Whereas they did a study of folks in France and people that drank one glass of wine tended to have much better longevity than the broader population globally. The thing is, you walk a lot in France too. Right. So a lot of this was activity. But look, I think again, as we age, as diabetes becomes more prevalent, and obviously a lot of these beverage alcohol products have a fair degree of sugar in them. So I think that's probably what's driving a lot of this.
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B
So, Nick, frame up for us. First of all, John, I need your doctor drink a day. Okay. Hi,
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C
Dwayne. I got bad news for you. He retired.
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B
Oh, no. So. So let's frame up. Let's go back a little bit, Nick, and frame up sort of what's happening. Like why are people in this kind of. I mean, would you call it a panic? What's going on? I mean, they're having an emergency meeting in Chicago, the beer distributors, everyone's trying to figure out what's happening with sales. Help us understand what is the context of, of what people are concerned about right now.
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A
Oh, yeah, there's panic. There's no question about it, you know, because it's, it's so ubiquitous, right? It's so ubiquitous across all three beverage alcohol categories or major categories. And every major manufacturer is feeling it, though there are bright spots and we'll talk about why that's really important. Right? Because I think people tend to hinge on the negatives without really understanding what's going right. And how that could be used as a template to help turn the entire industry around. But, you know, as long term followers of the beverage industry, the two of you will know and remember there was a time where no one was ever going to drink a carbonated soft drink again either. And here we are, and it's a little bit of a different story. I think about this bizarre world I'm living in where Keurig Dr. Pepper wants to separate from the coffee assets because they want to realize the valuation for its beverage assets, which are primarily driven
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by carbonated Soft drinks.
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It's crazy. So we, you know, as. As I believe Mark Twain said, you know, history doesn't repeat, but it does rhyme. And I'm seeing a lot of the same elements here in the beverage alcohol industry. So the industry's panicking because everyone's feeling it. Okay? But I think that the rules have changed, right? The rules of marketing have changed. And I've been kind of on my soapbox for the past 10 years or so talking about this whole notion of marketing and the lost art of marketing and consumer engagement and being relevant and shifting consumer occasions. Because that's really what's happened is society, the way we enjoy our free time has changed, but the industry's marketing has not. Right. If you think about most of the beverage alcohol marketing is in big gatherings, right? The bar, the nightclub, you know, big summer barbecue parties. But we're spending a lot more time alone and in smaller groups. And I don't think the industry has done a very good job of pivoting to being relevant in those moments. And because of that, other categories are taking the share. So, you know, there's a lot going on here, a lot to unpack. There's a lot of drivers. I think the industry has actually more control over its destiny than they think.
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So is doom scrolling now an occasion so doom scrolling? And there's a drink for that too. I mean, it's got micro occasions in some ways.
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Yeah, I would say it's not doom scrolling per se, but yeah, people are spending a lot more time alone, you know.
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C
So, Nick, what is the marketing that you think they need to do? In other words, the alcohol marketing I've seen is still pretty much about, you know, taste, enjoyment, enjoy it with friends, enjoy it in social occasions. How do you think it needs to change?
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Yeah, so I think there's a whole notion of relaxation, right. I remember some of those old movies I used to watch where the, you know, this was a long time ago where the man would come home from work and he would pour himself a glass of scotch, right? And it was kind of how he started his or ended his workday and started his life. Leisure, right? His leisure, part of his leisure life. I think the industry's gotta recognize that people are looking to unwind because we're so connected all the time. This is why the Corona marketing was so brilliant, right? Because it allowed you to basically say, wherever I am, I'm gonna basically take a break. Right? And this bottle of Corona is the way I do that. Right. And so there's a lot of psychology behind that. And I think the industry needs to think about how consumers are actually engaging with the category and saying listen, I just want to read a book and have a glass of wine. And you have these women that are having these, these book club parties. Where's the wine industry? There you have Gamers, you know, 21 plus year old consumers are gaming a lot, they're spending a lot of money in those video games. But there's no kind of relevancy of the beverage alcohol industry in that setting or in that environment.
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Do you think they've been playing the game of like big assumption occasions like let's focus on Super Bowl, I mean book club, you know, wine, there's not a ton of consumption that's necessarily going to happen on that. But I guess you're saying in aggregate all of that is a big, almost super occasion that's happening all week, every week.
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Correct? Yeah, even, even holidays, different holidays. Like I thought it was really fascinating. I saw AB's Cutwater brand did a advertisement around for Halloween with this RTD White Russian. Halloween is a, is a big party occasion that the industry hasn't really activated against for, I don't know for, since I've been covering the industry. Right.
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And here we got soft drinks.
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Yeah, correct. I think there's just so much low hanging fruit from a marketing angle and also being brand forward, like I don't think any of us wake up in the morning making a decision about what we're going to consume based on category. We do it based on occasion and based on brand. And so this is why the craft industry fell flat. Right. Is that they weren't brand focused, they were attribute focused.
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C
I looked at that Gallup poll that came out in July where they said 54% of Americans say they consume alcohol 90 year low majority say it's bad for your health. Do you think that the alcohol beverage industry needs to address the health issue?
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Yeah, I think in their own way. I also, I covered tobacco for a long time and these similar polls would be like 90% of people wanted to quit smoking yet like 2% did every year. Right. So you know what we say and actually what we do and think about it. I mean I remember way back when, 20 plus years ago, we threw the first obesity conference on Wall street in 2002, I believe. I mean that's a long time. We've been talking about a lot of this stuff yet carbonated soft drinks are thriving, candy is thriving, ice cream is thriving. You know, high calorie Starbucks frappuccinos are thriving.
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B
Obesity is thriving.
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Obesity is thriving. So look, the reality for me is as long as you're relevant, which is, I think, where the industry has fallen flat, I think you can be part of that basket. But to your point, John, about health and wellness and, you know, does the industry need to address it? Yes, especially for us, for aging consumers, you know, why can't there be a product that tastes like a Cabernet Sauvignon or a regular beer that has elements that reduces inflammation? I mean, the chemistry exists. It's not like it doesn't exist. So maybe the industry should be focusing its R and D efforts in areas like this. So we get what we want. We get everything we want. You know, we have our cake and we can eat it too.
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B
Are you saying like, is that like a functional alcoholic beverage, basically, like functionalized alcoholic beverages beyond just inebriation?
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A
Yeah, absolutely.
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C
Nick, do you think the FDA would allow that? You know, they've got all these rules on what you can enhance, what you can enhance. Do you think that if a wine company wanted to put some kind of anti inflammatory ingredient in wine, do you think the FDA would allow that?
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A
Well, if it's done properly with the right, you know, studies and clinical backing, absolutely. Now, I'm not saying this is a over the, you know, overnight solution, but what I'm saying is right for the rest of my working career, you know, which, you know, will hopefully be just another 10 years and that's it. I believe the single most powerful theme, whether you're investor or a corporate executive or a butler or retailer, will be the aging of the world. Okay? Because we're aging everywhere, right? And this is not going away. This is going to be a very, very big theme. And I think all industries have to figure out a way to get a bigger share of our wallet versus obsessing over Gen Z and Gen Alpha.
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C
I looked at that poll that came out in July, that Gallup poll that I just alluded to. You know, I remember when it came out and there was a lot of headlines around, you know, 54% of consumers in America say they consume alcohol at 90 year low. And I downloaded the. Before we did this podcast, I downloaded that Gallup poll yesterday. And there was one thing in there that I found very, very surprising, and that is that there's one group that's driving that decline in alcohol consumption and it's Republicans. So if you measured 2025 versus 2023, Republicans are the lowest. They're at 46% and their consumption is down 19 points since 2023 Democrats and independents have stayed roughly even in consumption, down a little bit. I mean, I have my theories. Why do you think Republicans over the last two years would be registering this huge decline in alcohol consumption?
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Oh boy, this is a good one, John. All right, so look, again, no political bias here. I'm just.
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C
Exactly. Not exactly, exactly.
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Beer tends to over index to lower income consumers, number one. So we have to just understand that. Okay. I believe, and what we wrote in our report is that what is going on, I think is. Has a larger role, cyclicality has a larger role to play than structural elements. You know, it's, let's call it 60, 40, cyclical, structural. Okay. I think the Republicans, you know, from just looking at the statistics and the ones that index to beer, because we've looked at this data as well, tend to be on the lower part of the income cohort. What we wrote is that the obsession over premiumization has really hurt the category because I think they've priced themselves out of the reach of some of their core consumers. This is why Bush Light is doing so well, because it's a, it's a sub premium beer. Right. And so I think a lot of that Gallup study would suggest that this is actually a cyclical issue because it really comes down to dollars and cents and being able to buy. And this is also affecting the entry level consumer. Right. If you keep on focusing on premiumization and you price your way out of that entry level consumer that has very limited discretionary income. Right. That's part of your problem.
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C
The fact that Republicans have had registering this 19 point drop in alcohol consumption from 2023 to 2025 has to be something which would imply to me that it's cyclical, that there's a very good chance if that bounces back, the overall alcohol consumption numbers look much better than they do right now.
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A
Yeah, I mean, I would say that is what I think will happen once the economy settles out and this inflationary pressure abates. Now, I don't see that happening in the near term. Okay. Because we're going to actually see probably more inflation as a result of tariffs, et cetera. But you know, when we start seeing more normal economic behavior, I do think we're going to see recovery. And I would even go as far to say that the legal drinking age consumer cohort, that 21 to 24 year old cohort, we will start seeing that increase in 2027. That is a prediction that I made in my report because I believe that those consumers have a much more normalized social pattern to prior generations than what the folks three, four years older than them had because of COVID
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B
So going back to your Busch Light example, Nick, and premiumization outs pricing people out of the market. I mean, my sense was that some of Bush, the Busch Light success was because of flavors and some premiumization even within that brand. So how does that relate? Am I right about that? And if so, but that's still at a much lower entry point, I guess, even if you're premiumizing that low end brand.
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A
Exactly. So that's kind of the point is that it's actually a great case study because they brought excitement to the category through innovation. The price point was approachable and it caught fire on social media. I mean, that's your trifecta right there.
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B
There you go. That's it. That's the playbook, guys.
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A
Correct.
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B
You know. You know, now let me ask you this. My sense is that real panic kind of set in when we started seeing the spirits makers and bourbon makers start to have, you know, issues that, you know, a year ago call it brown Forman, you know, they got into this kind of, you know, tough spot in terms of their consumption rates and their sales. How does that factor in when you talk about spirits? And what did that tell you? And am I right that that sort of almost triggered another level of concern? Because we've had declines in, in mass light beer brands for many, many years now. So that's not a huge surprise. But it seems like those other sectors that you talked about at the beginning really kind of set off some fear here.
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A
Yeah, Again, it's the ubiquity of the situation. Right. It's like the discussion was like, oh, how do we gain share if you're a beer player, how do we gain share from spirits? And if you're a wine players, you know, how do we gain share from beer? And if you're a spirit player, like, oh, how do we maintain our share gains? And now everyone's feeling it. Right. And so that's what I think. What's causing, causing the panic? And look, I again, the benefits of having done this this long, you see these cycles, I saw this happen with fragrance. I saw it happen with carbonated soft drinks. I've seen this happen with coffee. I mean, I can go down the list and none, in none of those situations was it structural decline. The only category that I've ever covered that's been in structural decline is with no kind of recovery was tobacco. That was it.
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C
But Nick, I'd argue that carbonated soft drinks is a structural decline. Let Me tell you why, in terms of the beverage digest data that Dwayne is doing now, but I did for many years, the category turned negative around 19, around 2000, 1999 or 2000. The category has not grown volume in decades now. And, you know, there was a perfect storm back in the. Around 2000-1999-2000-2001, the companies decided to raise pricing. Bottled water became rapidly available in soft drink, like packaging. Concerns about obesity and diabetes started growing. Concerns about aspartame started growing, and everything that happened. Now, the carbonated soft drink business, both in terms of volume and per caps, has not grown in decades. Why do you think that that model. Why do you think alcohol is different from that model?
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A
Yeah, well, what I would say a few things. One is the decline rate was very steep, and then it shallowed out when Coke got its act together. And then you started seeing Coke Zero and then Pepsi Zero, Pepsi Max, whatever you want to call it. Dr. Pepper. Right. So you have thriving brands in the category that no one ever thought any brand would thrive in this category. So that's the first point I would make. The second point I would make is I think we've gotten a little too stringent on how we talk about categories, because if, I don't know, like, aren't energy drinks a carbonated soft drink?
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B
I argued that for years. It is.
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A
Let's call a spade a spade. It's a carbonated soft drink. It just has more caffeine and it's marketed differently. It's just more relevant to the consumer. Right. And I could even go down the list with sparkling water. Okay, fine. It doesn't have caffeine. Some do, some don't. But, you know, bubbles, liquid flavor, these are. This is a carbonated soft drink. So I think that's part of the issue here is that we've gotten so, so narrow in how we think about the world by these category lines. But that's not the way the consumer makes choices. So hopefully that provides a little bit of context. John.
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C
Okay. I mean, I think that. I think you're right about the categories, but I think that from the point of view of the big companies, where it hurts them, is the wonderful model they've had for decades and decades of selling very, very high margin to concentrate to bottlers, that part of the business, which is getting hit by the volume decline in csds. And you're right, maybe. And you know that better than I do.
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A
Yeah. Well, another thing I would say is, like, I even believe these big brands, even Coke, I think can do a better job of marketing in the marketplace. I really do. Right. I think Coke is so ubiquitous and it means togetherness. And you know, they've, they've kind of defined it, but there's so many like micro occasions that Coke could be a part of that I don't think their marketing has really gotten to yet. Almost like that's what Dr. Pepper has done. Right. And I think Coke can probably take something from the Dr. Pepper playbook and create tribes within its broader brand. But the point being, John, is all of these are marketing solutions, right? Like we talk about this natural gravity on these categories, like there's no turning it around. Like, oh, you know, this is a bad category. In my experience, there's no such. And this is what Fabrizio Frida, the CEO of Estee Lauder, once said to me. There's no such thing as lazy markets, only lazy marketers. And I 100% agree with him.
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C
I think a lot of bothers would agree with you too, Nick. I think that, you know, I don't talk to as many bothers anymore or very few as I used to, but I think a lot of bottlers feel that if basically the brand owners did better marketing, the results would be better. So I think you're raising a good point.
- [25:29]
A
I think part of the issue that the beer industry has and part of the issue that the non beverage alcohol industry has is that there's always this blame game between the supplier and the bottler distributor. Right. I think the bottlers and the distributors also have to take some of the responsibility, going from logistics providers to market developers. And you know, so I think, I think this is a two way street and if they can all align and start saying stop blaming each other and start getting on the same page. And I think magic can happen.
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B
Let's take a quick break from the conversation so I can tell the audience about our Beverage Digest newsletter. If you're interested in going deeper on the topics that we discuss on this podcast, I encourage you to subscribe to our Beverage Digest digital newsletter and archive here. You will unlock exclusive insights that you won't read anywhere else. Plus, you'll get valuable data snapshots for the industry's most critical categories. See where growth is happening before anyone else. And let me tell you about our Beverage Digest Factbook, which gives you a detailed look at annual category, company and brand sales trends covering all channels dating back to the 1980s. That includes retail fountain up and down the street, everything. Want to see detailed territory by territory maps of The Coca Cola, PepsiCo and Keurig Dr. Pepper bottling systems. We've got them in a pair of resource guides that give you clarity and a visual reference for these three critical distribution networks. And don't forget our Beverage Digest Future Smarts conference where top industry leaders discuss and debate the most critical industry topics all in a single day. This is your ticket to network with industry thought leaders and get set for your next critical deal. That's part of what you said in your report, right. Is that the beer distributors need to take some responsibility here and there's a lot they could do on the local level.
- [27:32]
A
Yes, correct. Absolutely.
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B
And the same as you would believe for csds, in essence.
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A
Correct.
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B
You talked about energy drinks a little bit ago and it made me wonder when you're looking at this decline when it comes to alcohol and beer specifically at the same time that this is happening and getting worse. Energy drinks have, you know, they had a hiccup last year, but they're improving. So what, what's, what's the difference there? What's. Those are some of the same consumers or that core consumer set, but now they have that lower income consumer. But then they have the middle and higher income consumers as well that have been brought into the category. What parallels or disconnects do you see between those two?
- [28:16]
A
I think it reinforces the whole cyclical discussion. Look at the price increases of other caffeinated alternatives over the last three to four years, coffee and carbonated soft drinks. And then look at what energy drinks have done and the gaps have completely been blown out or narrowed in the sense of the consumer saying, wait, I feel like there's just more value here for my caffeine, especially if you're a cold caffeine drinker, like cold coffee, which you might get at a Starbucks at five bucks a unit, and then you can go buy a Monster Red Bull, whatever, in a grocery store, at a convenience store for much cheaper. And so a lot of, a lot of what is going on here is actually cyclical in nature in the sense that consumers are shifting to energy because they find it to be more value.
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B
Because. Yeah, because the gap between carbonated soft drinks and, you know, branded carbonated soft drinks and energy drinks are just so much more narrow now.
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A
And coffee as well. Like we, we actually did a piece where we showed there's an inverse correlation with how coffee is done versus energy drinks in the last year and a half. Now the other thing I would say again, and this is something that the beverage alcohol industry can learn from, is the energy drink category has done a wonderful Job of innovating with relevancy in niches that people care about. And that has added excitement and energy into the category, no pun intended. And that is partly another reason why it's being driven. So, again, I think the lessons are right in front of our face. The solutions are right there if we just pay attention.
- [29:49]
B
You talked about holidays before, too, and it occurred to me one of the things you've really seen Coca Cola and PepsiCo and Dr. Pepper do in recent years is lean very heavily into big holidays like Halloween. I mean, Halloween's an extremely important holiday, and it seems to me it becomes more and more important and. And a bigger part of their overall annual plan every year. You know, Fanta, of course, leading for Coca Cola, PepsiCo, with some of its flavors. To your point, that's sort of the playbook for alcoholic beverages. From your point of view, it sounds like.
- [30:26]
A
Absolutely. I mean, there's so many things like micro occasions that I talk. They should basically take a page out of the Hallmark playbook. Right. Like, there's a national holiday and a card being sold for literally every single day of the week. Right. Or the year. And, you know, what about college graduation? I mean, that's a wonderful time to celebrate. Right. I don't see the beverage alcohol industry leaning in there. What about Watch Love Island Watch parties, which are so popular in all the cities around the country? I don't see the industry leaning into those. Right. It's my older son, he's 18. He's in college now, but when he went on his senior prom, you know, the whole. His whole group, like 50 Kids, rented a bus and they drove down to the shore. They made six stops at convenience stores because I kept on seeing the charges come through my. Because he had my card. And I can't tell you how many soft drinks, Gatorades, Powerades, snacks that they were buying on their way. It was like 5, 600 bucks. Yet there's very limited merchandising or marketing energy that's put into that. Right. So again, I look at it being in the market as much as I am, I'm just like, wow, there's just so much opportunity.
- [31:41]
C
Nick, why do you think that is? I mean, you've got some really, really smart people running these big beverage companies. I agree with you, and I know others agree with you about the marketing and exploring occasions. Why do you think it's not being done to the extent that you think it should be done?
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B
Yeah. What are the barriers here? And is somehow scale an enemy of doing what this Hallmark approach You're talking about that need for scale and efficiency.
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A
Look, I think scale can be used as a, as a weapon if leveraged properly. So I don't think it should be debilitating. But here's the problem. Are these companies really consumer centric or are they customer centric? And that's the problem. See, when I go into the market, I'm consumer centric. I just want to understand what consumers are doing. That's why my favorite people to talk to are the merchandisers and the route drivers. Because they know. They know. Trust me. If you got a bunch of route drivers in the room with CEO of Coke or Pepsi or whoever, I'm pretty sure they're going to walk out. The CEOs would walk out of the room with, with a lot of information that they can use. Okay. This is how I do my work, right? And this is why I feel like I have a good handle on what's going on just because of the people I'm speaking to. So I think that a lot of these companies are very customer centric. Hey, what does our program at Walmart look like or Kroger look like or whatever? Not necessarily consumer centric. And so how do we figure out innovative organizational designs leveraging AI to bring and feed that periphery of the organization all that insight on the consumer and bring it into the center of the organization so better decisions can be made. Now, one would say to me, Nick, these companies have hundreds and hundreds of people employed on consumer insights. And true, but there is nothing better than being in the market and getting real life data points.
- [33:41]
C
I think you're right, Nick. I think that back in the days when you had people like Roger Enrico and Don Keough running these companies, the huge consolidation of retail customers had not started yet. And I think part of what's happened is retail customers have gotten so powerful because of the consolidation that the companies, the companies perhaps are focusing on the retail customers more than they used to when there was more focus on consumers. Do you think that could be a factor?
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B
Great point.
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A
Absolutely. Absolutely. Yeah. I mean, these companies all built their empires by being very consumer centric. And then over time they became stakeholder centric.
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C
Right.
- [34:31]
A
This to me is.
- [34:34]
C
Look, I think when I was young, there was no such thing as Walmart or Costco or Target and it was all local and some grocery store chains. I think that a very few bunch of retail customers control their business today. And I think you raised a great point. I think that has been partly responsible for, for altering their focus and it's understandable But I think you're right. They've got to get to, they've got to get back to being more consumer centric.
- [35:09]
B
I mean, the difference talking about Nick is being short term focused, right? If you're focusing on customers, that's generally a more short term focus. You're saying focus long term because if you don't keep the consumers over time, then the customers aren't going to matter that much anymore.
- [35:24]
A
That's exactly right. Yeah, that's exactly.
- [35:26]
C
Good point, Duane. Yeah, it's a good way of looking at it.
- [35:29]
B
And so how do they break that? What do you do? I mean, what do you advise as a CEO of, you know, a big company like Coke or Pepsi that's, you know, working through those competing pressures and well, first of all, you go to the people who are up and coming and smart and who have the ability to try to take some risks and affect that change and hope it bubbles up, I guess. But you know, how do you break that cycle and get them to think more, truly be more customer or consumer focused long term?
- [35:56]
A
Well, first thing is you just have to recognize it's an issue and let's not let egos get in the way as often happens, right? And let's just say, yeah, well, geez, why haven't we like, you know, I think, I think Coke should be growing way faster than it's growing right now. Like they're doing a great job. And I think this management team has done a, I mean, I've covered Coke a long time, they're doing great, but I think they can actually do better. Because think about how many areas of white space they could attack that they don't have dominant positions. I mean, they've struggled in bottled coffee. Let's call a spade a spade, yet it's the biggest brand in Japan. Like, help me reconcile that difference. Right. And so I just feel like they, every company needs to acknowledge that maybe there's a different way of us thinking about how, how we make choices and decisions. This will require organizational design changes. You know, these are tough changes.
- [36:48]
C
Do you think other, other, do you think other companies and other industries are doing a better job with consumers? I mean, do you think the tech companies are doing a better job focusing on consumers than say the beverage companies are? I mean, do you think Apple, for example, is more of a consumer centric company?
- [37:04]
A
Absolutely. And John, I'll tell you, just because I cover everything in CPG and consumer staples, this is a criticism I have for every company in every industry across consumer. This is a big problem and so
- [37:22]
B
would you say Keurig Dr. Pepper within carbonated soft drinks is doing better than Coke on that long term consumer centric
- [37:29]
A
view with Dr. Pepper? Yeah, I mean they, they, I think they have a good, they have a good thing going. But look, let's call spade a spade. Also, outside of Dr. Pepper, there's a lot of struggling pieces of the Dr. Pepper portfolio. Right. So I wouldn't say that Keurig Dr. Pepper has somehow cracked the code. Right.
- [37:50]
B
All right, let's move to young consumers. Now we talked a little bit about the older set when it comes to alcohol, but let's talk about young consumers. Like what is happening with young consumers, how much attention should be focused on them. You say some of them are going to end up coming back into alcohol as some of these economic pressures subside. Walk us through how to think about young consumers on the alcohol side. And then I'd be interested in your thoughts on the, the non alcohol side as well.
- [38:21]
A
Yeah, look, I think for, for the young consumer, first the marketing has to be relevant. Okay. There's a reason why Michelob Ultra is doing so well with younger cohorts is because of the run clubs. Right. This is the new dating app for many consumers. Right. And Michelob Ultra's marketing is very much aligned with that have your cake and eat it too lifestyle. Right. So I think marketing has to be relevant for the shifting occasions for these young consumers. That's number one. Number two, I think you have to provide them with choices that they can feel like they can afford and not feel guilty about consuming.
- [39:00]
C
Right.
- [39:01]
A
And so I'm not saying abandon the trade up. I'm not saying that. What I'm saying is have offerings for those entry level consumers that have very limited discretionary income. And by the way, that discretionary income that would go to all beverage alcohol back in, when I was 21 is now going to online gambling. Online gaming. There's so many other polls on that wallet. So you need to offer them value. Right. Relevant value, not just cheap products. Right. That's why again, the Bush Light case study is so, so interesting to me. Right.
- [39:38]
C
Making your point, Nick, Going back to that Gallup poll, if you look at the, where the fall off on alcohol consumption is, it's really young people, you know, the 55 and older consumers down a bit, but the 18 to 34 and 35 to 54 are down much, much more.
- [39:57]
B
And the argument is they're pressured economically.
- [39:59]
A
Right, pressured economically, but also the industry hasn't maintained relevancy. Right. Like if you're a young consumer or an older consumer, you're not crushing THC beverages at a party, right? You're at home with your spouse or your partner maybe, or watching TV before you go to sleep. Right? So that relaxation occasion that the beverage alcohol industry might have had has been stripped away from THC beverages. You see what I'm saying? And so because the beverage industry, alcohol industry, has not done a good job of marketing and being relevant in those
- [40:32]
B
moments, there's also this notion that young consumers, they're still drinking, but they're still drinking higher end products, more premium products, they drink less of them. Instead of necessarily trading down, they just drink less of the Guinness or whatever higher end beer they're drinking. Is that something you've seen in your research?
- [40:56]
A
Yeah, I think that's happening. But there's also consumers that are being left behind, right? So again, there's no one size fits all situation here. What I think the industry and all industries need to think about is in a world of bifurcating incomes, this is not going to end. The rich are getting richer, the poor are getting poorer. This is not changing. No matter what happens, AI is only going to accelerate it. Right? And in that world, you have to be relevant to those two extremes. And I think that's where the industry has fallen, fallen a bit short.
- [41:30]
B
You have to walk and chew gum at the same time, as they say.
- [41:32]
A
Yeah, I call it a twin engine approach. Right. You need an organizational structure that can appeal to both because both require different capabilities and competencies.
- [41:45]
C
So in carbonated soft drinks, given that bifurcation you're talking about, how can they do that? How can they basically maintain or build relevancy for both groups?
- [41:56]
A
Well, I think the revenue growth management and the pack size angle is actually an important one. Right. Providing affordability. So an 8 ounce can, a 7 ounce can or whatever. So I can get my treat but not feel so guilty about the cash outlay if I'm lowering. Or how about if you're a non carb having a premium with functional benefits at the high end and then a powdered version at the low end. Right. So there's so many ways of approaching this situation.
- [42:27]
B
We were talking about the csd, the carbonated soft drink category earlier and how it was, you know, in decline and then Coke got its act together. You said, and I'm assuming you're back to the days when sugar was becoming a real issue. They were still pushing, you know, larger packs and you know, the sugar versions. And at some point they, they basically said, look, we, we have to stop trying to get people to drink more regular Coke. We need to drink, they need to drink from the Coke portfolio, including zero sugar. We need to acknowledge you shouldn't drink six cup today, but you might have a couple of zero. And that was a big moment when Sandy Douglas, you know, sort of acknowledged that and they kind of re engineered the company around that notion. And you know, in your report you talked about the fact that you have to acknowledge the problem. That's the first step. So my question to you is, has the alcohol industry now acknowledged the problem in the same way that we saw the carbonated soft drink industry do a decade or so ago?
- [43:30]
A
Absolutely. I mean the best thing that happened after I wrote this report is not my client, the investor community feedback. It was the industry's feedback sharing stories of things that they're doing along these lines. The energy was incredible. And so I was just. That was really, really heartening to see and hear and read. Right. So I do think, I do think the industry has figured it out. I think they finally created the nuanced understanding of the structural versicle and you're starting to see things go into action. And so I'm optimistic. I really am.
- [44:06]
B
What are some of the best examples? Any quick one or two come to mind before we close?
- [44:10]
A
Well, I don't want to call out any specific examples because these are specific folks that responded to me directly. But just let's say that there's a lot of energy being put behind understanding occasions and going after those occasions.
- [44:27]
C
Many, many years ago when I had Beverage Digest. I love to ask the analysts this question. What do you think about deals, Nick, in the non alk business and the alcoholic beverage business between the two, is there a potential beyond what KDP is doing? Do you have any sense that we're heading into a couple of years where we could see some major deals in the alcoholic beverage or non alcoholic beverage businesses?
- [45:01]
A
Absolutely, John. I mean, you know, it's not like I have any specific combos in mind though. You know, we can speculate and theorize on that, but I think it's only a matter of time. It is inevitable that beverage alcohol and non alcohol companies will combine in the next three to five years because the supply chains already consolidating. Right. And I think everyone is realizing this is not a category game, it's an occasion game. Right. And I need to have as many of those eight ounce opportunities as I can get and I need a broader portfolio to do it. And so I absolutely believe we are going to see some Crazy cross category. M and A and partnerships. And we're already seeing some of those partnerships. Right. So we're kind of seeing some of the dance partners line up. But it's going to be interesting. But I absolutely believe that's going to happen.
- [45:51]
B
Do you think the management teams are starting to come to that realization, like, truly internalizing that as a. As a real need?
- [45:59]
A
Yes.
- [46:02]
B
Great. And you don't want to speculate on any combinations?
- [46:09]
A
Nope, not here.
- [46:11]
B
What would it be? Coke and Brown, Foreman.
- [46:17]
A
You know, you could, theoretically, you could match up a lot of companies with one another. Right. It really then comes down to culture, it comes down to synergies, leverage, you know, purchase price. So. But I think there's. There's a lot of interesting combos out there that would make sense.
- [46:33]
C
And distribution and bottling contracts. I mean, if you put together a big software company and a big beer company, you've got two sets of DSD distributors with contracts. And then I think I've always believed that adds a layer of complexity to potential deals.
- [46:49]
A
Yeah, it does. Now, the interesting thing, John, is that we're getting to the fifth generation for many of these businesses, which is usually where consolidation gets triggered at an elevated level. So again, this is going to be a long process, three to five years over that time frame. My sense is that the distribution system will consolidate first and then that will make it easier for some of these larger supplier deals to happen.
- [47:13]
B
Well, when that happens, we'll have you on again to talk it through. Looking forward to that. Hey, Nick, thanks so much for joining us today. John, great to talk to you as always, and good luck out. I assume you'll be out. Oh, you're going to be out at nbwa. And good luck out there. And have fun.
- [47:29]
A
Yeah, thanks. Appreciate it.
- [47:31]
B
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